The government should think hard before deregulating university fees

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Caroline McMillen does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.

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University of Newcastle Vice-Chancellor Caroline McMillen says the government should look at the evidence before implementing the Commission of Audit’s recommendation to deregulate university fees.
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The National Commission of Audit released yesterday has made a recommendation to government in line with proposals from some Group of Eight vice-chancellors that university fees should be deregulated, increasing student contributions and removing caps on how much universities can charge.

Deregulation is a seductive word. It has such pleasant associations of throwing off the shackles of bureaucratic restraint to let institutions and the market run free. While many universities, including the University of Newcastle, welcome the reduction in administrative burden signalled by the government’s reforms to the higher education regulator, TEQSA, we might pause before embracing proposals to deregulate fees and the sector with unfettered enthusiasm.

On the face of it, allowing universities to charge what the market can afford for their courses appears to provide much greater freedom for institutions to realise the true market value of their degrees, particularly in a constrained funding environment. Put aside for a moment the vexed issue of the impact of fee deregulation on student equity, access and participation. The proposition of a boost to base funding seems particularly attractive as universities balance investment in teaching excellence with investment in world-class research and innovation.

It is the capacity of our universities to deliver on all these fronts that has underpinned the reputation and global competitiveness of the Australian higher education system. With government funding at risk, it is possible to see fee deregulation as a “lighthouse” signalling the way to a more secure and sustainable future for higher education funding. But will this signal lure Australia’s universities onto jagged rocks?

This will depend on whether fee deregulation is in fact a euphemism for “fee shifting”, a simple redistribution of current levels of funding support for higher education from the government to the student.

The evidence from England

The most recent experience we have available of the impact of a deregulated fee environment is in England, where there has been a significant shift in the way universities and colleges are funded. From 2012, students starting university were required to meet much of the cost of their education, through access to publicly funded loans. Universities were also able to charge up to £9,000 a year (about AUD$16,350) for their courses – a trebling of the pre-2012 fee in some cases.

Some Australian universities – notably the older Group of Eight institutions – have argued that fee deregulation should result in price differentiation between higher education providers. Students would be able to choose whether to pay a higher fee for “premium” education.

The UK experience does not bear this out. The Higher Education Funding Council for England (HEFCE) reported that the average tuition fee loan awarded to English students in 2012-2013 was £8,040, with the overall estimated sector average fee even higher at £8,507. Allowing universities to charge more for their programs has not differentiated the market. Instead, most institutions are moving to the higher fee “cap”.

More worryingly, a report released in April by the University Alliance found that the increase in student fees did not bring in much additional funding to English universities overall. Some universities were actually worse off under the higher fee regime due to the shift in government support from base funding to more volatile loan subsidies. Even though the total quantum remained roughly the same, the balance of public-private investment shifted from 65:35 to 50:50.

The author of the report, Libby Hackett, notes that:

the English experience suggests that any increase in the cost of public loan subsidy is likely to result in a matched reduction in core public funding for teaching.

It’s a salutary warning, perhaps, for advocates of fee deregulation in Australia. If fee shifting occurs and overall funding to universities does not increase, support for research – which is what makes a university a university – could depend to a significant extent on the ability and willingness of students to pay for a university education.

Public investment pays dividends

Further decreases in public funding for higher education would be in contrast to the strategic investment by governments across the world, particularly in Asia, to build the capacity of their universities as drivers of economic growth, productivity and development.

Strong government investment has resulted in rapid growth of strong universities. Five years ago, there were no Chinese universities in the world’s top 200 universities (as measured in the Academic Ranking of World Universities). Today there are five. Universities from South Korea, Hong Kong and Singapore dominated the top five places of the Times Higher Education top 100 universities in the world under the age of 50 released today.

Federal education minister Christopher Pyne’s recent speech to the Policy Exchange in the United Kingdom reminded us that the Coalition government will “continue to place education at the heart of our society, our economy and our democracy”. We would wholeheartedly support this aspiration. Australia should aim to have one of the best higher education systems in the world, one which is open to greater competition and less encumbered by regulation.

It is important, however, in moving to deregulate fees and the sector to beware the inadvertent consequences of any ‘fee shifting’. Any policy around deregulation must be developed and implemented strategically to future-proof the international reputation and standing of Australia’s universities. There is no doubt that as we navigate the way ahead - strategy, caution and a long term vision for what we wish the university sector to deliver for Australia are required if we are to avoid those looming rocks.